Reliable Electric Co. v. Olson Construction Co.

Olson Construction Company (defendant) was the general contractor for a project on which Reliable Electric Company (plaintiff) worked as a subcontractor. Reliable left the project after Olson allegedly breached the subcontract. In January 1980, Reliable filed a Chapter 11 bankruptcy petition but did not identify Olson as a creditor. Reliable’s attorney notified Olson’s attorney of the bankruptcy proceeding, but Reliable never gave Olson further information about the bankruptcy case. In November 1980, Reliable sued Olson in state court, seeking damages for Olson’s alleged breach of the subcontract. Olson removed the case to the federal bankruptcy court and filed an answer and counterclaim against Reliable. In early 1981, Reliable filed a reorganization plan. Reliable’s scheduled creditors were given notice of the plan and the opportunity to object. The bankruptcy court confirmed the plan following a confirmation hearing and then sent Reliable’s scheduled creditors notice of the court’s confirmation order and Reliable’s discharge. Because Olson was not a scheduled creditor, Olson never received notice of the confirmation hearing or the court’s confirmation of the plan. The bankruptcy court later held a trial on the subcontract dispute and entered judgment in Olson’s favor for $10,378. Reliable then filed a claim for $10,378 on Olson’s behalf in the bankruptcy proceeding. Reliable asked that Olson’s judgment be treated as a prepetition debt that was subject to compromise and payment as a general unsecured claim under the confirmed plan. That treatment would make the judgment subject to discharge. The bankruptcy court found that Olson’s judgment was not subject to the plan because Olson had not been notified of the confirmation hearing. The court explained that Olson’s claim would be substantially impaired without due process if Olson had to comply with the plan. Reliable contended that even if Olson had not received the necessary notice, 11 U.S.C. § 1141(d) provided that confirmation of the plan discharged all of Reliable’s prepetition debts, regardless of whether a proof of claim had been filed or the claimholder had accepted the plan. The district court denied review of the bankruptcy court’s decision, and Reliable appealed.